Ola needs to raise funds this year to refill its cash coffers, and is talking to both new and existing investors such as Didi Chuxing and SoftBank
Bengaluru/New Delhi: After reversing much of its market share loss to Uber, India’s largest cab-hailing service Ola has initiated talks with investors to raise a new round of funds as it seeks to maintain its lead over the arch rival, two people familiar with the matter said.
Ola wants to raise $300-400 million, they said, speaking on condition of anonymity because the talks are private. But the company may have to lower its expectations, depending on investor appetite, they said. Ola needs to raise funds this year to refill its cash coffers, they added.
The company, India’s third-most valuable start-up, is talking to both new and existing investors such as Didi Chuxing and SoftBank Group, the two people said. Like Ola’s last fund raising of $500 million that was completed in November, the company may first get funds from its existing investors and then top it up with cash from new investors, they said.
Ola didn’t respond to an email seeking comment.
Ola’s fund-raising efforts come at a time when the company has regained the initiative from Uber in the race to dominate India’s booming cab-hailing business.
Over the course of 2015, Uber significantly increased its market share by spending heavily on recruiting new cabs, paying huge subsidies to drivers, offering attractively low prices to customers and by accepting cash payments from riders. Uber’s market share soared to roughly 40% at the beginning of this year from just 5% a year ago, according to Uber executives.
To win back market share, Ola, which disputes Uber’s claims of market share, launched Micro, the cheapest cab offering in the market, in March. Micro has transformed Ola’s fortunes, at least for now.
Since its launch in early March, Ola has reversed much of last year’s market share loss to Uber and opened up a big gap against its rival, the two people cited above said.
While its market share has jumped since the launch of Micro, so has the company’s cash burn, they said.
Earlier this year, Ola shut Ola Cafe and Ola Store, its food and grocery delivery services, after these failed to become popular with customers. These launches, which were inspired by similar offerings from Uber in international markets, were Ola’s efforts to diversify and maximize the use of its large supply of cabs.
Yet, in a business where supply of cabs rather than consumer demand is the chief constraint to growth, these initiatives ended up distracting Ola from its core cabs business at a time when Uber was singularly focused on catching up with its local rival.
This year, however, Ola has thrown all its weight behind its core business to keep Uber at bay.
“Ola is in a much better state right now compared with six months ago. It regained the dominant position in the cabs market and shut all the side businesses that were distracting it. Ola has also realized that it cannot slip with Uber sniping away at its heels. It’s an important lesson from last year and Ola is going to be stronger for it," one of the two people cited above said.
Ola, which has so far raised about $1.2 billion from Tiger Global Management, Matrix Partners, SoftBank Group, Didi Chuxing and several other investors, needs to keep raising huge amounts of cash to fund its operations, especially given how cash-rich Uber is.
Earlier this month, Uber India was one of the biggest benefactors of the massive $5 billion raised by its parent company in the US, as it looks to overtake local rival Ola in one of its largest markets globally.
India is the most important market for Uber, which is present in 461 cities globally, after the US and China. While Uber dominates its home market, it is struggling to gain ground on Didi Chuxing in China. Didi itself raised $1 billion in May from iPhone maker Apple Inc. and followed it up with another $600 million in fresh funds from a Chinese insurance company this week.
Didi’s massive war chest is expected to boost Ola’s access to capital.
The importance of India is only likely to increase for Uber this year as analysts expect the company to struggle to overcome Didi in China.
If Didi continues to win by a significant margin in China, India may become for Uber what it is for another American tech giant Amazon: a market it cannot afford to lose. In that case, Ola will face stronger competition and may need a bigger capital cushion, analysts say.
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